A British investment fund has become the latest company swept up in an investigation by Cuban authorities of corrupt practices among the Communist island’s state businesses and their foreign partners.

Police closed the Havana offices of the Coral Capital Group Ltd last week and arrested chief executive Amado Fakhre, a Lebanese-born British citizen, sources close to the company said. Serious stuff… closing the offices and arresting the CEO.

The offices were sealed and cordoned off with police crime scene tape during the weekend. Andrew Butchers, the fund’s finance director, told Reuters from Coral Capital’s London office that the company had no comment now but would release a statement soon.

The top executives of both companies and a number of their Cuban employees and business partners were arrested.

A vice minister for sugar, Nelson Labrada, was arrested in late September for signing off on purchases from the Canadian companies, a source close to his family said.

Just as in the Canadian cases, the precise allegations against Coral Capital are not known and have not been reported in Cuba’s state-run media but they are evidence that the government’s corruption sweep is widening.

Coral Capital, registered in the British Virgin Islands in 1999, is best known in Cuba as the joint venture partner in Havana’s upscale Saratoga Hotel and another hotel complex on the resort key of Cayo Coco. It had plans to build golf courses and related real estate developments near Havana, for which it had begun raising equity capital, and expected to sign a final agreement with the Cuban government by 2012. This is referring to the Bellomonte golf course resort project in Playas del Este, east of Havana.

The fund diversified into trade financing and importing heavy equipment and other merchandise in recent years and this, rather than its real estate ventures, may have led to its problems, foreign business sources said. The company represents various international brands in Cuba, among them Liebherr Earth Moving, Yamaha Motor Corporation and Peugeot Motorcycles, according to its Internet site. The site says Coral Capital has invested some $75 million in Cuba, with more than $1 billion of projects in the works.

ANTI-CORRUPTION CAMPAIGN

Cuban President Raul Castro has made fighting corruption a top priority since taking over from his ailing elder brother Fidel in 2008, attacking high-level graft in food processing, civil aviation and the cigar and nickel industries. Investigation into shipping and the communications sector are also under way. You know why the Cuban government is closing down these “corrupt” companies? It doesn’t like the competition.

“In a country where small-scale but widespread corruption is the rule, if the government is to be seen to be serious about rooting out the scourge, it must show it is doing so at the very top and doing so in a dramatic way,” said Hal Klepak, a Canadian military historian and author of two recent books on the Cuban military and Raul Castro.

“I do not see it as bad at all for foreign business in Cuba, probably just the opposite in the mid- to long-term,” he said. “But there is also little doubt that it does make many jittery when the problem is such a generalized one.”

What they mean is “in a country where just about everything is illegal or regulated to the point where there can be no profits, the Cuban government can shut down any Cuban or foreign business it chooses to”.

Raul Castro, a general who led Cuba’s Defense Ministry for 49 years, has cracked down on corruption in tandem with efforts to revive the sagging Cuban economy through more market-oriented policies. He has been less active in tackling problems such as low salaries and lack of transparency.

There is no open bidding in Cuba and officials and their employees who handle multimillion-dollar contracts earn the equivalent of just a few dollars per month. And you wonder why there is corruption in Cuba?

Castro has moved military officers into key political positions, ministries and export-import businesses and in 2009 established the Comptroller General’s Office with a mission to attack corruption and a seat on the Council of State.

“The Cuban regime hits away at individuals but is reluctant to make changes in the mechanisms that bred opportunism and corruption. As a result why should people believe that these ‘cases’ should end the generalized practices of corruption?” said Bert Hoffman, a Cuba expert at the German Institute for Global and Area Studies in Hamburg.

Coral Capital Group Ltd. was set up in 1999 and is incorporated in the British Virgin Islands. It was founded to consolidate the existing work of the management team in the Republic of Cuba and to facilitate participation in the economic development of the country.

Offices are at Avenida 5ta. B No. 6206 e/ 62 y 66 in Miramar.

Coral Capital Group develops and manages a multitude of varied investment opportunities and business activities in and with Cuba, and is the most diversified foreign investor there is today, having commenced (and in some cases already completed) arguably the widest range of projects / business activities of any foreign group in Cuba.

A wide range of past, present and future investments, including hotels, golf & real estate, logistics zones, plastics, film production, as well as art.
Historic projects

Hotel Saratoga in Havana, Cuba

In 1997, a time when there was no luxury hotel market in Havana, a joint venture was signed with state entity Habaguanex for the restoration of the Saratoga. After investing $28m in the complete rebuilding of the hotel, it opened in 2005 and is managed by the JV. All that remains of the original 130 year old, 3 story hotel is a retained facade. Coral led negotiations for obtaining the necessary permissions, created a design solution with a team of international experts and then constructed 13 new floors including a double basement using a Cuban executive team of consultants. The result is recognized as simply the best 5 star boutique hotel in Cuba.

El Senador in Cayo Coco, Cuba

This is one of the largest hotel and resort complexes in Cuba and is 20 minutes from the international airport of Jardines del Rey. It is a JV with the state tourism giant Cubanacan. Originally completed in 2001, Coral led a consortium buy-out of the foreign side of the JV in 2006. With a kilometer of beach front and covering 33 hectares the property has 690 rooms built around a natural lagoon. Cayo Coco is an “all-inclusive” destination popular with Canadian and British visitors. The property is undergoing a substantial re-investment and re-branding program. It will reopen in winter season 2011/2012 and is managed by IBEROSTAR, one of the most commercially successful international operators working in Cuba today.

Coral Plastics SA.

Coral entered into a 5 year production co-operative agreement with Plásticos Industriales. The business was to finance, produce and sell HDPE bottles and retractive film for the domestic market. The business was mothballed by mutual agreement when the impact of oil (and thus raw material) prices reduced margins. Coral is currently exploring and expansion of the business into lines for export.

Pipeline Projects

Bellomonte Golf and Country Club

Bellomonte is a high profile investment project strategically linked to the development of tourism in Havana. It is in the first wave of four JV’s taking advantage of new real estate laws passed in July 2010 allowing sale of residential property to foreigners. Within the metropolitan limits of Havana in Playas del Este, it will provide key tourism facilities such as golf club, country club and spa, 30,000sqm of commercial space, 160 key 5 star beach hotel and beach club. These also form the essential amenities for the residents of the real estate element which will comprise of up to 1,200 homes. The site enjoys both ocean views and view across unspoilt countryside yet is only 25km from the center of Havana. The project is a JV with state enterprise Palmares and a construction start of the $120m first phase is planned for the end of 2012.

Mariel Development Zone

A 600 hectare, economic development zone is to be constructed adjacent to the new deep water container terminal at Mariel. This is a major strategic initiative of the government. “Promote the creation of special economic zones” Proyecto de Lineaminatos PCC April 2011 Item III:96. Over five years, Coral has developed a business plan with their strategic partner Economic Zones World (part of Dubai based JAFZA). Using specialist consultancy services from E&Y, LCP and Drewry Shipping a masterplan has been developed. The first phase envisages an investment of $43m in building out 50,000sqm of warehousing, LIU’s and offices.

Development appraisals

Using in-house expertise Coral has undertaken a series of research studies analyzing the potential of various important investment opportunities in the Cuban economy. Sectors and projects that have been analyzed cover a wide range, for example; intensive aquaculture, forestry, food production, charter airlines and real estate development. Projects currently under analysis include a $85m re-worked copper mine and a $30m high tech production facility for the export market.

Trade Finance

The sale, with commercial finance, of equipment and technology required by several Cuban government importing agencies for strategic sectors of the economy, including Nickel, Petroleum, Industrial Gases and Transport.

Laroc Trading Fund

The management of Laroc, a Curacao-based fund that lends money to foreign groups selling goods and services to Cuban entities, but who wish to mitigate the Cuban non-payment risk.

Industrial maintenance and others

The provision of industrial maintenance and other services to the Cuban industrial sector. The most notable amongst these is the cleaning of storage tanks for the principal oil refinery in Cuba.

Other services of interest include inspection, maintenance and repairs of all components of industry, as well as earth moving services for the mining sector. CIDC Services.

It is noteworthy that Coral Capital Group is also positioned to act on behalf of third parties, as an arm’s length agent, in case of need, using CCG’s local know-how to best effect.

—————————————- Havana Journal Comments—————————————-

I wish the owners and employees of Coral Capital well going forward. It is a sad day to see all their collective hard work be stolen by the Cuban government. Was there corruption in the company? Maybe. Was it egregious enough to shut down all of the operations as listed above? I doubt it. I think the Cuban government just stole millions of dollars of Coral Capital business under the guise of “cracking down on corruption”.

People call me and email me on a regular basis to ask me about business opportunities in Cuba. Everybody wants to be the “first one in” or to “get their foot in the door”. I tell everyone that they will invest a lot of time and money in their Cuban business venture and they will loose both. Most people just don’t want to believe it but this news is just another example of how the Cuban government will take your time, money, talent and intellectual property once you have served your purpose.

I invest in Cuba by owning Cuba related domain names and building internet based business models that the Cuban government cannot take from me. That’s how you invest in Cuba.

Our friends at CubaStandard.com sent out an email with comments on the situation in line with mine above:

Dear Cuba Standard reader,

If a Reuters report about last week’s arrest of the head of Coral Capital Group - apparently as part of a corruption investigation - is correct, some of Cuba’s most ambitious investment projects may be in trouble.

While no serious foreign investor objects to Cuba cleaning up its act, a sense of insecurity is rising among foreign businesspeople because previous investigations have not exactly been transparent. If similar cases earlier this year are an indicator, the public can expect to be fed only with sketchy information late in the process. As of Monday, Cuban official media have not reported about the arrest.

Meanwhile, jitterish investors are clamoring to find out what this is all about. That’s because, different from the three foreign companies that have been slapped with corruption investigations recently, this British company is a key player in Cuba’s economic change: Coral is one of four investor groups selected for the country’s first golf real estate projects, it participates in the strategic expansion of the port of Mariel, it has funded hotel construction, and its trade finance services are crucial to smoothing transactions for many foreign importers.

One has to wonder, now that the “soon to be approved” Cuban golf course list is now down from four to three, will other golf course developers want to sink any money into a country where EVERYTHING can be taken away overnight?

How about golf course condo buyers? Since the Castro government has a long track record of seizing assets, I doubt many condo buyers are going to line up to purchase condos in Cuba and developers know this.